The government is clawing back over £1bn in support for businesses despite many facing bankruptcy under new coronavirus restrictions, a study has found.
Local councils are being asked to hand back £1.3bn in unspent emergency grants to the Treasury, despite the reimposition of public health restrictions in vast swathes of the UK.
The Treasury demand includes £340m of potential support grants to areas still subject to local lockdown restrictions, where many firms are being pushed to the edge by bans on gatherings and restrictions on opening.
Labour accused the government of a "smash and grab raid" as the scale of the clawbacks emerged and said it made "zero sense" to end the support now while the economy was still vulnerable.
At the start of the first national lockdown the government made a pot of funding available for councils to support businesses in their area, but on a use it or lose it basis.
Funds that were unspent by 30 August now have to be returned to the Treasury despite changing circumstances and a coming possible second wave.
Lucy Powell, Labour’s shadow minister for business and consumers, said the policy risked the "decimation" of Britain's high streets and that the funds should be redeployed.
“Businesses are in a fight for survival. The business secretary must stand up to the Treasury and demand they reverse this smash and grab raid on business support or risk the decimation of our high streets," she said.
"It makes zero sense to remove economic support while public health restrictions are tightening.
"It’s now clear that some places and some businesses are going to be acutely hard hit over a longer period than was first thought.
"Rather than clawing remaining funds back, the government should redeploy these funds and allow local areas to use them flexibly to support those businesses and town centres hardest hit, before we see waves of redundancies, shuttered high streets and viable businesses going bust.”
A government spokesperson said that ministers keep all financial support under review.
“Our support for business has reached, and continues to reach, millions of firms across the country. More than £11bn has been paid out in grants to almost 900,000 businesses, with a further £617m available to councils to use at their discretion. We have also backed businesses with a wider package of support worth almost £200bn, including cuts to VAT and business rates relief.
“We keep all financial support under review to support businesses who need it most. That’s why we introduced new targeted support for businesses in England that are required to temporarily close due to local interventions to control the virus, who will now be able to claim up to £1,500 per property every three weeks.”